Under the headline, NY online retail tax approved, DM News reported pending legislation in New York that would require online retailers with no physical presence in the state to collect and remit sales tax on any sale delivered to a New York address.

Based upon the article, the nexus theory is that retailers, such as Amazon, derive sales thru affiliates which do have a New York physical presence.

This raises many issues — political, legal and pure business.

Political — another example of liberal Democrats who seek any and every opportunity to levy a tax on anything. They’ve been trying to find a way to so this for years.

Legal — there seems to be a rather obvious legal problem with a state taxing interstate commerce, a privilege restricted by the U.S. Constitution to the purview of the federal government.

Business — does paying shipping and sales tax have the effect of depressing online sales activity.

There is nothing to be done about the political implications — Democrats will always try to tax whatever they can get away with taxing. And Democrats will likely continue to dominate the State of New York for the near term.

Even the DM New article references the likely legal challenge to the law. Good for whomever takes it on. I hope they win and the law is voided.

But adding a sales tax will likely have a depressing effect on some online sales.

All direct commerce sales — whether via a catalog or online — are about convenience more than price. But price is still a factor. I suspect lower-valued sales will be effected. Higher valued sales are likely to benefit from “free shipping for orders over $X.” Thus, once you get over $X, a buyer is faced with paying the same sales tax they would pay if they bought it locally at a store, and the convenience and price ratio is really unaffected.

However, if a buying transaction does not benefit from “free shipping”, I suspect the imposition of sales tax can almost double the non-product expense related to the purchase. So, a $50 purchase + $3.75 tax + $5 shipping becomes a $58.75 expense.

My rule of thumb is that if tax + shipping + handling is more than 10 percent of the value of the products, then sales may be negatively effected.

I think this is also likely to be a major factor in shopping cart abandonment rates online.